Intrinsic and Time Value for Puts - Example 3: ITM
|
Put Intrinsic Value
|
|
Put Time Value
|
|
Stock Price
|
$77.00
|
|
Stock Price
|
$77.00
|
|
Put Premium
|
5.58
|
Put Premium
|
5.58
|
|
Exercise Price
|
80.00
|
Exercise Price
|
80.00
|
|
Time to Expiration
|
4 months
|
Time to Expiration
|
4 months
|
|
|
|
|
|
Intrinsic Value
|
80.00 - 77.00 = 3.00 |
Time Value
|
5.58 - 3.00 = 2.58 |
Notice how [intrinsic value + time value] = the option value
Formulae for intrinsic and time values for puts:
-
put intrinsic value = strike price - stock price
-
put time value = put premium - put intrinsic value
The minimum intrinsic value is zero.